How Is the Economic Downturn Affecting the Airline Industry?

Stagflation in US economy threatens outlook for the airline industry profitability. US airlines forecasting Q108 losses citing high fuel costs and a potential economic slowdown.

Other regions of the world will expand such as Asia, Middle East and Latin America.

Slowdown has already affected some US small-mid cap carriers with the recent onslaught of bankruptcies.

US majors are better armed to combating the effects of the sharp increase in jet fuel. Cost reduction initiatives have been announced.

Slowdown in the US economy is expected to accelerate consolidation talks between the majors.

Cash cushions at most US majors from a profitable 2007 will help them in the short-term. Financial impact of slowdown could be delayed to 2009.

FAA investigations into major US airlines maintenance practices regarding AD’s were heightened as a result of the increased scrutiny following lapses of compliance.

ANALYSIS

Stagflation in US economy threatens outlook for the airline industry profitability. US airlines forecasting Q108 losses citing high fuel costs and a potential economic slowdown.

Downturn in Economy
Profitability for the airline industry adjusted to $4.5B US airlines are most exposed to the risks in the business environment. US airlines forecast cut to $1.8B net profit in 2008. This could turn into a net loss if the economic environment deteriorates further. ­If central banks fail to reverse the credit crunch, the outlook could be worse. ­US consumer confidence slumped in March to levels consistent with a serious recession

Increase in Jet Fuel Prices
Record high numbers of $130+/barrel.
Airlines like Delta only hedged at $90/barrel
The offset to rising prices during 2004-2007 provided by rising US consumer confidence and travel demand has come to an abrupt end in 2008.

Other regions of the world will expand such as Asia, Middle East and Latin America. Competition...

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